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June 27, 2009

That Was The Week That Was ... In Australia
By Our Man in Oz | www.minesite.com |

Minews. Good morning Australia. It looks like you had another flat week.

Oz. It does, but only if you use the start and finish points as your guide. If you do that you see a fall in the overall metals and mining sector of less than one per cent, and a rise in the all ordinaries index of one tenth of one per cent. Anyone standing back and looking at those numbers might be inclined to yawn. But, if you look at the individual days you get a bit of excitement, and see the trading opportunities that were created on three days that produced an upward trend and two days when things headed south.

Minews. Did any sector stand out, either way?

Oz. Not really. It was a very mixed week with rises and falls scattered throughout the various commodities. Gold trended down, in line with the price of the metal in the opening days of the week. But we can expect better next week after London’s stronger close on Friday. Iron ore stocks were also down, with the odd move up. Same with uranium and coal. It was a slightly better picture among the base metals, with nickel stocks starting to attract interest, perhaps because nickel is always first in, and first out, of the metal-price cycle. Zinc was flat.

Minews. Any rub-off effect in your market from Xstrata proposing marriage with Anglo American?

Oz. Not really. The view down here seems to be that Xstrata probably needs the deal more than Anglo American. Neither company has a strong following in this neck of the woods, but from here it looks as though there’s a touch of the same excess debt and poor asset problems which caused OZ Minerals and Rio Tinto so much grief. Xstrata, despite owning the old MIM Holdings with its copper and coal assets, as well as Canada’s Falconbridge with its nickel mines, is carrying a whopping US$27 billion in debt and needs a deal to stay alive.

Minews. It makes you wonder when the accountants running mining companies will learn that debt and mining never mix. But enough of the chit chat. Time for prices, starting with gold this week please?

Oz. The emerging Argentinean-focussed Andean Resources (AND) is a good place to start in the gold space because it had a yo-yo of a week, starting at A$1.86, falling to A$1.69 on Wednesday, then announcing a C$90 capital raising in Canada on Thursday and soaring to A$1.98 during Friday trade, before ending the week at A$1.89. That gave Andean an official gain over the week of A3 cents, but only after having traded in a A29 cent band. Meanwhile, Kingsgate, a one-time Andean suitor, performed a similar trick, but ended substantially higher. It opened at A$6.38, fell to A$5.95 on Tuesday, and then soared to a 12 month high of A$7.11 during Friday trade before closing the week at A$7.01. That gave it a gain of A63 cents, but after trading across a band measuring A$1.16.

Minews. Plenty there to keep your day traders awake.

Oz. There certainly was, and the pattern was repeated across the sectors - one reason why looking at the start and finish of a week can be a little misleading if you’re looking for the real story. Continuing with gold, Centamin (CNT) was one of the genuine stars of the week, adding A22 cents to A$1.79, although it did get as high as A$1.85 on Friday, a 12 month high, and as low as A$1.60 on Wednesday. Resolute (RSG) started the week at A70 cents before fading to a low of A57 cents on Thursday and then recovering to A62.5 cents on Friday for a fall over the week of A7.5 cents. Perseus (PRU) fell A10.5 cents to A74.5 cents with no sign of a mid-week rebound. Allied (ALD) did better, and while it ended down A2.5 cents at A43 cents for the week it could have been much worse, as the stock oscillated between A37 cents and A47 cents.

News flow from the gold sector helped a few stocks along. Corvette Resources (COV), a stock we don’t hear much about, added A2 cents to A13 cents after reporting assays as high as 9.8 grams a tonne over eight metres from its Plumridge project in Western Australia. On Thursday the stock rose as high as A17 cents. And Stirling Resources (SRE), the comeback vehicle for Michael Kiernan, unveiled a rescue plan for the failed Monarch Gold (MON). There was little trading in Stirling which has undergone a one-for-10 capital consolidation, but it still managed to fall by A5 cents to A23 cents during the week. Monarch remains suspended. The gold sector also welcomes back Norseman Gold after a period in the wilderness and on the London market, which we sometimes think is much the same thing. It re-listed on Thursday at a hefty A62 cents, and faded to a Friday close of A52 cents.

Minews. Iron ore now, please.

Oz. Down across the board, apart from the latest example of what a dash of Chinese interest can do for a stock. Wah Nam, a Hong Kong-listed company, snapped up an 11.3 per cent stake in Brockman (BRM) though not by a placement, which has been the preferred route so far. Wah Nam’s move was an on-market raid, with a courtesy note to Brockman after the event. So, on the market, Brockman added A6 cents to A$1.26, but did get as high as A$1.31 on Tuesday. After Brockman it was all downhill, but not by much. Atlas (AGO) slipped A1 cent lower to A$1.78, but moved between a band of A$1.55 to A$1.80, in another example of the vigorous movements noted across all sectors. Northern Iron (NFE), eased off by A7 cents to A$1.36. Fortescue Metals (FMG) dropped A9 cents to A$3.77. BC Iron (BCI) lost A2 cents to A$1.20, and Talisman Resources (TLM) the comeback vehicle of Kerry Harmanis, fell A3 cents to A30 cents after a disappointing expert’s report on its flagship Wonmunna project.

Minews. Uranium and base metals to finish, please.

Oz. Some uranium stocks were in demand, but the overall picture was one of stocks trending down. Mantra (MRU) was the pick of the pack, rising A50 cents to A$3.84. Paladin (PDN) added A46 cents to A$4.86. Uranex (UNX) hit a 12 month high of A58 cents on Friday after a fresh capital raising, and closed the week at A56.5 cents for a very strong gain of A15.5 cents. On the flipside, Extract (EXT) finally ran out of steam, losing A56 cents to A$6.64. Toro (TOE) fell A2 cents to A19.5 cents, despite OZ Minerals expressing ongoing confidence in the stock in which it holds a controlling interest. Meanwhile, Alliance (AGS) reported further progress at its Four Mile project, but fell A2 cents to A70 cents.

Nickel stocks led the way among the base metals, with the price of the metal clearing the US$7.00 a pound mark, which translates into a very attractive A$8.75/lb for Australian producers. Several companies responded. Mincor (MCR), which we took a look at mid-week, added A12 cents to A$1.59. Independence (IGO) rose A34 cents to A$4.52, also aided by increased optimism about the Tropicana gold project. Minara (MRE), which could pop free in the wake of the Xstrata/Glencore move on Anglo American, rose A6 cents to A84 cents, and Poseidon (POS), which has been named as a possible bidder for BHP Billiton’s mothballed Ravensthorpe laterite project, added A1 cent to A28 cents.

Copper stocks trended down with Copper Strike (CSE) and Marengo (MGO) going against the trend. Copper strike benefited from growing interest in its Einasleigh project in Queensland. It added A7.5 cents to A17.5 cents. Marengo rose A2 cents to A12 cents. On the way down we saw Indophil (IRN) fall A9 cents to A48 cents, despite a positive report on its part-owned Tampakan project in the Philippines. Anvil (AVM) slipped A3 cents lower to A$1.85 and Citadel (CGG) was A2.5 cents lighter at A19 cents. Most zinc stocks fell. Perilya (PEM) lost A3 cents to A38 cents, CBH (CBH) fell A2.5 cents to A11 cents, while Terramin (TZN) went against the trend, adding A1 cent to A70.5 cents.

Minews. Thanks Oz.
 
June 29, 2009

What The Fox And The Hedgehog Tell Us About Commodities: It’s All About Inventories

By Rob Davies | www.minesite.com |

Trying to analyse current conditions in various financial markets isn’t easy, and commodities markets are no exception. The online and offline financial press is full of comments from gurus and experts with all manner of prognostications about the likely evolution of events. Some, like Albert Edwards of Société Générale, think that the Chinese economy will be much slower in the second half than many expect. That of course begs the question of what people actually do expect, and how many experts it takes to make an expectation.
Clearly, investors who have pushed the Chinese stock market up nine per cent this year take a more optimistic view of events than Mr Edwards. But few organisations can claim more experts than the Organisation of Economic Co-operation and Development (OECD), and the OECD now takes the view that the global outlook is improving for the first time in two years. It believes OECD economies are near the bottom, but also concedes the recovery will be slow. A projected implosion of activity this year of 4.1 per cent will be followed by growth of just 0.7 per cent in 2010. Not very exciting at all, although it is important to remember that OECD data don’t include China.

Even so bond markets reacted poorly to these figures and US Treasury yields climbed back to 3.5 per cent. A similar response was also in evidence in equity markets, which have lost the upward momentum they have enjoyed since early March and have started to edge lower. Commodities, apart from gold, are risk assets, and moved in the opposite direction, edging higher over the week. The best mover was nickel, which put in a four per cent gain to US$15,350 a tonne, followed by lead with a rise of 3.8 per cent to US$1,700 a tonne. Copper rose two per cent to US$5,023 a tonne, and aluminium lagged the pack with its two per cent increase to US$1,621 a tonne.

In the face of all this data, much of it conflicting, it is easy to feel like the apocryphal fox of who knows many things, and is unsure of what action to take. Life for the hedgehog is much simpler. He knows one big thing - the fox wants to eat him for breakfast - so he lives his life accordingly. So it is with commodities. There is a vast amount of information out there that invites analysis. In reality, though, no one really knows what will happen, it just suits brokers and money managers to pretend that they do.

A hedgehog looking at the commodity industry would very quickly ascertain that the one big thing to be concerned about is the level of inventories. If a four per cent contraction in the world economy only leaves zinc stocks at half the level they were five years ago it suggests there is very little fat in the system. The same applies to copper, where LME inventories are 10,000 tonnes less than last week at 271,600 tonnes. Apart from aluminium, all the metals have amazingly low inventories given that we are in a period of such a large economic contraction.

And, as Mick Davis circles around Anglo American it is hard to avoid the analogy with the animal world. Over the last few decades Anglo under various leaders seems to have had little clear directions and to have embarked on various adventures, all of which have had the effect of eroding shareholder value. On the other hand Mr Davis, first at Glencor, then Billiton, then Xstrata, has had the single minded vision of a hedgehog who knows one big thing: that is, to focus on consolidating a large and disparate business to tighten supply, keep excess capacity low, and ensure inventories stay tight.
 
July 05, 2009

That Was The Week That Was ... In Australia
By Our Man in Oz >> www.minesite.com

Minews. Good morning Australia. Another flat week, it seems.

Oz. It looks that way, but really it was a repeat of last week. Three down days and two up, resulting in a 2.6 per cent fall in the metals index on the ASX and a 1.8 per cent fall in the all ordinaries. As with last week, that picture of a market drifting lower only told part of the story. As you dig into the different sectors of the market you find bright spots to lighten the gloom. The gold sector produced a couple of very solid winners in Avoca (AVO) and Norseman (NGX). Iron ore had two stand-out winners in Sphere Investments (SPH) and Emergent Resources (EMG), and even the lacklustre base metals sector produced a winner, one which we drawn attention to several times in the past as a seriously under-valued stock, Hillgrove Resources (HGO).

It must be two years ago that Minesite first noted the gap between Hillgrove’s share price and the value of its minority stake in a coal-seam methane explorer, Eastern Star Gas. Well, that gap was partially plugged on Friday when Hillgrove sold its 19.9 per cent stake in Eastern Star to the big Australian petroleum company Santos, for A$176 million. At the time of the transaction, Hillgrove was trading at A17 cents, which valued the entire company at A$70 million. Naturally, when the sale was reported the stock shot higher, briefly touching A27 cents, before easing to close at A24 cents which, still values the company at just A$99 million. Does that make Hillgrove a screaming buy? Well, the equation certainly looks compelling, because you get a company stuffed to the gills with cash, a copper project at Kanmantoo waiting to go ahead, and very interesting gold assets in Indonesia.

Minews. Interesting indeed. Time for a few prices, please?

Oz. Before we get there, there are a few other news events worth reporting as they might not have made their way over to the other side of the world yet. The nickel sector, which is always first in, and first out, of any change in the metal market, was the subject of two interesting developments. First came news that the local iron ore and coal billionaire Clive Palmer has bought BHP Billiton’s Yabulu nickel refinery in Queensland - an interesting twist in the long-running saga of that plant which was once controlled by the disgraced Alan Bond. More importantly, BHP Billiton is facing the forced closure of its Leinster nickel mines after another almost fatal underground rock fall. The Western Australian Government has served BHP Billiton with a demand for a full engineering study and “please explain”. If Leinster is closed it would take at least another 15,000 tonnes of nickel off the world market.

Minews. Which can only be good for other nickel stocks.

Oz. Precisely, and we saw a few modest upward moves among the small nickel producers, but nothing outstanding. Panoramic (PAN) added A8 cents to A$2.31 and Western Areas (WSA) was up A28 cents to A$5.70. On the flipside, Mincor (MCR) eased back by A10 cents to A$1.49 after a few strong weeks, and Independence (IGO) was down A28 cents to A$4.24 despite good production numbers and an expectation that the Tropicana gold project, in which it has a minority stake alongside AngloGold, will soon get a formal go ahead.

Minews. Let’s stick with gold and then move across the spectrum.

Oz. As mentioned earlier, Avoca and Norseman were the best of the gold stocks. Avoca reported record gold output of 52,118 ounces for the June quarter, news which lifted the company’s share price by A24 cents to A$1.79. At one stage on Friday Avoca rose to a high of A$1.84. Norseman, which only recently re-listed on the ASX after a period on London’s Aim market, continues to excite the locals. It add A25 cents to A77 cents, driven by the release of an updated resource statement that lifted proven and probable gold reserves by 25 per cent to 400,000 ounces, all contained in 1.4 million tonnes of ore grading 8.9 grams a tonne. The significance of the higher resource number is that previous owners have never been able to drill far enough ahead to prove the mine’s life even though everyone working there knew there was plenty of gold yet to come from the Norseman fields. Norseman seems to have managed it though, and the market has shown due appreciation.

Other upward gold moves were hard to find, though, given the weaker trend in the gold price and the Aussie dollar holding at around the US80 cent exchange rate. Sector leader Newcrest (NCM) managed a truly modest rise of A27 cents to A$30.30, and Kentor Gold (KGL), which we don’t hear a lot about but which continues to make progress with its Savoyardy project in the Kyrgyz Republic, added A0.2 of a cent to A4 cents. After that it was all downhill, or flat. Centamin (CNT) eased back A5 cents to A$1.74 despite pouring its first gold at the Sukari project in Egypt, and Resolute (RSG) lost A4 cents to A62.5 cents despite pouring its first gold at the Syama mine in Mali.

Minews. Sounds like another example of it being better to travel than to arrive.

Oz. It does. A quick finish with gold because there were really isn’t too much to report. Troy (TRY) shed A6 cents to A$1.26, Kingsgate (KCN) lost A21 cents to A$6.80, Lihir (LGL) was A6 cents lighter at A$2.90, Perseus (PRU) slipped A1.5 cents to A73 cents, Adamus (ADU) fell A4.5 cents to A35.5 cents, and Allied (ALD) shed A3 cents to A40 cents.

Minews. Time for iron ore please.

Oz. Sphere and Emergent led the way up in a generally down week. Chinese interest, real in the case of Emergent, and possible in the case of Sphere, was the key factor. Emergent, which rarely gets a mention anywhere, added A10 cents to A60 cents, after announcing a joint venture with China Metallurgical Investment on the Beyondie magnetite project in Western Australia. At one stage on Friday the stock hit A65 cents. Sphere, which rose A16.5 cents to A90 cents was powered along by rumours of a deal covering its Guelb el Aouj project in Mauritania.

The only other iron ore stock moving up was Cape Lambert (CFE) which added A2.5 cents to A34.5 cents, but that was mainly the result of it moving closer to control of the Lady Annie copper project which is being sold off by the receivers of the failed CopperCo. After those upward moves it was re-run of the gold story, with companies trading either flat or down. Atlas (AGO) fell A20 cents to A$1.58, Fortescue (FMG) was down A25 cents to A$3.52, and Golden West (GWR) lost A4.5 cents to A42 cents. Also weaker, BC Iron (BCI) slipped A7 cents lower to A$1.05 despite making a formal development decision on its flagship Nullagine project. That weakness was perhaps another example of travelling being better than arriving. Gindalbie lost A4 cents to A76 cents after announcing the retirement of its long-serving chairman George Jones, for health reasons.

Minews. Uranium now and then finish the base metals you started earlier.

Oz. More of the same “going-nowhere” story with uranium. The only difference with the gold and iron ore sectors is that nothing rose. Extract (EXT) after its stellar run of the past six months, fell A62 cents to A$6.02. Mantra (MRU) was down a less painful A15 cents to A$3.65. Uranex (UNX) shed A6 cents to A50.5 cents, and Forte (FTE) fell A 2.5 cents to A13.5 cents.

Copper stocks generally did nothing, apart from Hillgrove which we mentioned earlier, and that was really a gas powered upward move. Equinox (EQN) dropped A20 cents to A$2.69. Anvil (AVM) was off by A19 cents to A$1.66, while Citadel (CGG) and Marengo (MGO) were steady at A19 cents and A12 cents respectively.

The zinc sector produced two winners. CBH (CBH) rose A2.5 cents to A13.5 cents after reporting strong production numbers from its Endeavour mine, and Sabre Resources (SBR) reported an expanded target area at its Pavian Trend project near the Angolan border in northern Namibia. Sabre doubled in price from A5 cents to A10 cents, but in paper thin trading that saw 40,000 shares exchange on Thursday and 47,000 on Friday. The rest of the zinc market was down.

Minews. Any coal news or specials to finish?

Oz. Up and down in the coal sector. Coal of Africa (CZA) added A8 cents to A$1.65 and Riversdale (RIV) lost A40 cents to A$5.01 after a critical report on its prospects from Macquarie Bank. The only special worth noting was Spitfire (SPI), the manganese explorer we reported on during the week. It added A1.5 cents to close the week at A11.5 cents, but did get as high as A14.5 cents during the week.
 
July 06, 2009

Global Spending Power Shifts East, And Metals Prices Follow
By Rob Davies >> www.minesite.com

The twentieth century belonged to the US. Now that 2009 is more than halfway through it is interesting to reflect on the progress so far and whether this century will again be dominated by America. No one of course should extrapolate the events of the last six months out for the next 90 odd years. Even so, some signs may give a clue to the future.
So far this year the US stock market has made no net progress. It suffered a sharp fall in the first quarter and then an even steeper recovery in the second quarter to leave it back where it started. Rising US unemployment means that 30 million Americans now have virtually no spending power. In all likelihood US unemployment will continue to rise as the country’s industry adapts to a new economic environment of lower economic growth, lower margins and smaller profits. The political ramifications of this genteel poverty can only be guessed at. An estimated US$15 trillion of wealth destruction is going to hurt to someone.

Contrast that tale of woe to developments elsewhere in the world. In the first half of the year the Chinese stock market has risen nine per cent. The Indian market rose 49 per cent just in the second quarter. Without doubt part of this reflects an increased appetite for risk. But could it also signify a much deeper change in the economic geography of the world? We already know that China uses more metal than the USA and, overall, emerging markets are more important to commodities than the developed world. The reason for that is quite simply that the balance of consumer spending is moving east. The first quarter of 2009 was the first period since 1952 that US households reduced their overall indebtedness. Americans aren’t spending, they are saving. It is the emerging economies that are spending. Hopefully, they will only spend what they earn and not what they can borrow.

This generational change in behaviour may explain why commodities seem to tracking emerging market shares rather than that of the developed markets. Over the first half of the year base metal prices have made steady progress upwards, rather than just treading water like Wall Street or London. Copper has been the best performer rising from US$3,300 a tonne to S$5,000 over the six months. Nickel had a bad start, falling from US$13,000 to US$10,000 a tonne before climbing steadily back to US$16,000. Zinc has had a similar trajectory, starting at US$1,200, dipping to US$1,100 a tonne and then finishing at US$1,550. Lead mirrored these movements very closely but ended a little stronger at US$1,700 a tonne. Aluminium is the only metal that has made little real progress, starting and ending at US$1,600, although it did spend a lot of time trading closer to US$1,400 a tonne.

It may well be that the progress of the base metals over the first half of the year is a better guide to economic future than stock markets. In which case it really does demonstrate that spending power is migrating from one end of the world to the other.
 
July 12, 2009

That Was The Week That Was … In Australia
By Our Man in Oz
www.minesite.com

Minews. Good morning Australia. A big news week for you, even though not much happened on the market...

Oz. A very big news week thanks to the Chinese dragon showing its true colours, or should that be its true claws. The arrest of a Rio Tinto iron ore sales team in Shanghai sent a shudder through the entire Australian resources sector because it reminded everyone that China remains a totalitarian state with the communist party in charge of everything. It will be a long time, if ever, for the truth to surface in this messy affair, but there’s no doubt that a lot of Australian companies which have done deals with China are now re-thinking the relationship, re-thinking any plans to send senior executives to China, and taking much greater care about what they say in the privacy of their offices and hotel rooms.

Minews. You’re hinting that a bit of bugging might lie at the heart of the arrests.

Oz. Absolutely. In fact, a few weeks before the Rio Tinto boys were hauled away there was a wire service report floating around about how most of the preparation for iron ore sales now takes place in Singapore after the discovery of electronic listening devices in the Rio Tinto offices in Shanghai. What we don’t yet know is whether the buggers (if that’s the right word) actually got something on tape, or whether the Chinese have been embarrassed about being found out. Whichever way you analyse it, the whole episode has a touch of the Cold War about it, and serves as a reminder that China can still behave like a Stalinist state.

Minews. More importantly, was there an effect on your stock market?

Oz. It seems so, though it can never be proved. Most iron ore stocks fell, perhaps a result of the steady stream of news reports about iron ore salesmen being locked up, though the downward price trend was also evident among gold and base metal stocks. Perhaps the best measure of the incident was the sharp fall in the value of the Australian dollar which dropped by around US2 cents to US78.15 cents, but did spend part of the week below US78 cents. A war of words, let alone a trade war, with China will not do Australia any good.

Minews. Enough of the chit-chat. Time for price, please.

Oz. As hinted, the trend over the week was down, but as with the past few weeks it was not a consistent pattern. All of the falls occurred early in the week, with the last two trading sessions, on Thursday and Friday, in recovery mode. The end result was that the metals and mining index ended down 2.4 per cent, while the all ordinaries fell by 1.8 per cent. The target of the Chinese arrests, Rio Tinto, slipped 2.5 per cent lower, very much in tune with the overall mining market, while its new partner in iron ore, BHP Billiton, was down 2.3 per cent.

Continuing with iron ore, because that’s the newsy sector, only one rise could be found. Atlas Iron (AGO) added A3 cents to A$1.62, thanks entirely to a strong Friday. Earlier in the week the stock had been trading as low as A$1.51. The list of the stocks falling is long and boring, with most moves over the week of little consequence, so we’ll keep it short. Fortescue Metals (FMG) lost A12 cents to A$3.40, BC Iron (BCI) fell A6 cents to A99 cents, and Brockman (BRM) slipped by A2 cents to A$1.20. Iron Ore Holdings (IOH) was one of the heavier losers with a drop of A10 cents to A69 cents, while Gindalbie (GBG) lost A3.5 cents to A72.5 cents, despite receiving a positive response from institutional investors invited to a corporate roadshow in Sydney and Melbourne during the week.

Minews. Gold now, which should have benefited from that fall in your dollar.

Oz. There might have been some hope of that, but the damage of the gold price falling away to around US$912 an ounce outweighed the benefit of the currency move. A trawl through the gold stocks found a few upward moves, but they weren’t moving by much. Carrick Gold (CRK), a company which does nothing to market itself, reported encouraging assays from its Brilliant prospect near Kalgoorlie, including 18 metres at 4.68 grams a tonne, which was enough to see the stock add A4 cents to A64 cents. At one stage Carrick was trading at A68 cents. The only other gold companies to rise were Adamus (ADU), Allied (ALD) and Tanami Gold (TAM). Adamus added A2.5 cents to A38 cents. Allied filed a strong report from drilling at its delightfully-named Pigibo prospect on Simberi Island in Papua New Guinea. This included a 47 metre hit assaying 2.84 grams a tonne. Good as that was, it only helped Allied up by half a cent to A40.5, although the shares did touch A45.5 cents during Friday trade. Tanami, a stock we used to hear a lot about, was also driven up modestly after it hit a rich lode at its Coyote project in the Northern Territory. Results there showed a best assay of 3.4 metres grading 27.3 grams a tonne. On the market, Tanami added one tenth of a cent to A3.3 cents.

Now comes the long list of the fallen. At the top was St Barbara (SBM), which announced the closure of some of its older mines to save costs, resulting in a share price fall of A3.5 cents to A19 cents. But also worse off were Kingsgate (KCN), down A40 cents to A$6.40, and Bendigo (BDG), down A1.5 cents to A25.5 cents. Avoca (AVO), meanwhile, was hit very hard by heavy sellers who took A25 cents out of the stock which closed the week at A$1.54. And the list doesn’t end there. Resolute (RSG) fell A8.5 cents to A54 cents, Centamin (CNT) fell A12 cents to A$1.62 and Silver Lake (SLR) fell A13 cents to A58 cents.

Minews. That’s enough of the bad news from the gold sector. How did uranium and base metals stocks perform?

Oz. One uranium and two coppers up, but nothing positive from nickel or zinc. The uranium stock to attract support was the day-traders favourite, Extract Resources (EXT), which rose a modest A16 cents to A$6.18, but after that we saw Mantra (MRU) slip A10 cents lower to A$3.55, Uranex (UNX) lose A7.5 cents to A43 cents, and Paladin (PDN) fall A33 cents to A$4.40.

The copper stocks on the way up were Hillgrove (HGO) and Sandfire (SFR) which we took a look at on Friday. Hillgrove managed a tiny rise of half a cent to A24.5 cents thanks to the big cash injection received from the sale of its stake in a coal-seam gas company. Even with that small rise Hillgrove is still trading well below cash backing. Sandfire remained a traders’ favourite, adding A29 cents over the week to close at A$1.50, but did get up to A$1.56 at one stage on Thursday. Citadel (CGG) finished steady at A19 cents. But everyone else fell. Equinox (EQN) lost A25 cents to A$2.44, Marengo (MGO) was off A1 cent to A11 cents, and Anvil (AVM) slipped A11 cents lower to A$1.55.

Nickel and zinc, as mentioned, were flat all over. Independence (IGO) was the best of the nickel stocks, easing back by A2 cents to A$4.22. Western Areas (WSA) shed an equally modest A1.5 cents to A76 cents, and Mincor (MCR) fell A7 cents to A$1.42. Best of the zinc stocks was Terramin (TZN) which held its ground at A63 cents, while Kagara (KZL) fell A4.5 cents to A68.5 cents despite finalising a Chinese rescue package. CBH (CBH) lost A1.5 cents to A11 cents and Perilya (PEM) lost A3 cents to A33.5 cents.

Minews. A quick look at coal and any specials to finish.

Oz. Coal was a mixed bag, which actually makes it a winner in a down week. Macarthur (MCC) rose by A50 cents to A$6.75, and Riversdale (RIV) was up A67 cents to A$5.68. But Coal of Africa (CZA) fell by A20 cents to A$1.45, and Felix (FLX) fell A4 cents to A$13.90 respectively. No specials to speak of.

Minews. Thanks Oz. Trust you’re packed for the long haul to London next week and a spot of cricket.
 
July 13, 2009

Chinese Buying May Now Slow As Inventories Build, But The Summer Won’t Be Quiet For Everyone

By Rob Davies
www.minesite.com

The initial shock of the credit crunch of 2008 is now passing into recent history. Rather than being replaced by optimism about the future, though, the prevailing mood is now one of glum acceptance that we are all a lot poorer than before. Worse, there seems little prospect of that changing, and that makes people grumpy. In politics it is evidenced by increasingly direct attacks on rivals, and in business by previously unheard of actions. Price negotiations between the Chinese and Rio Tinto have gone on for a record period of time and in desperation it seems the Chinese have resorted to arresting employees of the miner. Whether that will improve the price they ultimately get remains to be seen.
So far this year commodities have held up well, in large part because of the activities of China in building up stockpiles of key raw materials. However, a report by UBS suggests that the Chinese now have more than enough for current conditions and it postulates that purchases in the second half will be significantly less. Whether it was that information, or the general air of renewed bearishness, over the week the appetite for risk assets was much diminished.

Equities drifted lower and so did base metals, although the falls were marginal. Copper dropped US$7.00 to US$4,820 a tonne on the three month price, lead dropped US$8.00 to US$1,620, and zinc dropped US$13 to US$1,507. Against the trend aluminium rose US$5.00 to US$1,570, and nickel was up US$78 to $15,050. No doubt a contributing factor to the lethargy was the start of the summer holidays and a corresponding reduction in trading volumes.

Not all miners will be having a quiet summer though. The announcement of a new chairman for Anglo American will help concentrate minds at that company and its predator Xstrata. The new man, Sir John Parker, has a track record of delivering good prices for companies being taken over, an indication, perhaps, that the board of Anglo realise that they have had a major role in impoverishing shareholders and that creating wealth is a task better given to Mick Davies, who has an excellent track record.

Doubtless some could argue that his buccaneering ride through the mining industry over the last decade was only possible because he was easily able to finance his acquisitions through the ready availability of credit. But where he differed from other mining entrepreneurs was in leading the charge of consolidation in the industry and bringing much needed rationalisation to the sector.

Chasing profit rather than volume growth made a huge difference to the economics of mining, and raised the return on capital employed to respectable levels. If he wins control of Anglo American it will mark the end of the road for executives that have mis-allocated capital for decades, especially in the diamond industry. That will be a seminal moment, but once Anglo American has gone the industry will need to address the issue of under-investment in exploration and development that went alongside the last decade of consolidation.

To get back to a more normal inventory level of mines waiting to be developed the industry will have to spend a fortune to find the new deposits that will be needed to service consumers in the decades ahead. Will that mean that Xstrata will turn its attention to exploration companies after it has gobbled up Anglo? And, more importantly, will there be money available to fund those programmes? That will largely depend on how poor investors feel once the deal is completed.
 
August 03, 2009

The Concerns Of The World’s Economists Focus On China, As It Drives The Global Economic Recovery

By Rob Davies
www.minesite.com

The old aphorism was that when the US sneezes the rest of the world catches a cold. Right now though, the US has pneumonia while the remainder of the globe is only suffering from flu. The reason the rest of the world has not been dragged down quite as much as the US is the rising importance of emerging markets and especially of China. Indeed, now that China accounts for 10 per cent of the global economy the “emerging” label is a bit demeaning. It is the stunning growth of China this year, rather than the continuing contraction of the US economy that is the reason commodities have done so well and confounded expectations.
A graph of the LME index over the last twelve months, shows a fall from the 4,200 mark last August to a low of 1,614 in December 2008, before the subsequent rise to the current level of 2,700. Interestingly that graph is a closer match to the Shanghai stock market index than it is to the S&P 500. Both the LME index and Shanghai have virtually doubled this year, while US stocks have only risen about 20 per cent.

So that’s fine then. The current buoyant metal prices - US$5,496 a tonne for copper, or US$16,845 for nickel, say - mean that the dark days we witnessed at the turn of the year are now behind us and we can all relax as the Chinese locomotive takes the task of hauling the global economy along over from the US. No longer do we have to worry about US respiratory diseases infecting its trading partners.

That argument is valid to some extent, but John Authors of the Financial Times, made some telling points in a video clip last week. He explained that at the same time as the Shanghai index was doubling in the first half of 2009 Chinese bank lending grew by 50 per cent, a sharp contrast to the tight-fisted approach taken by Anglo-Saxon banks.

The concern is that this money has not been well used, as evidenced by the 30 per cent fall in Chinese exports over that period. Instead, some of it seems to have gone into stockpiling and inventory accumulation, with reports on Bloomberg that there is 1.3 million tonnes of surplus copper in store. That is lot when we recall that there is only 278,000 tonnes in LME warehouses.

These concerns expressed themselves in a seven per cent fall in the Shanghai stock market in one day last week. To some that has eerie similarities with an eight per cent fall seen on the same index one day in February 2007, a day that many regard as the precursor to the widespread equity declines that affected all equity markets over the next two years and anticipated the sharpest recession in a lifetime.

It may well be that China is now more important to the world economy, and commodities, than the US. But all that means is that concerns over sovereign healthcare simply move from one hemisphere to another. Whether China is suffering from a summer cold or something more serious will be a key factor for metal markets over the remainder of the year.
 
August 06, 2009

Life, And Stockbrokers, Return To Kalgoorlie
By Our Man In Oz
www.minesite.com

Pinch me, to prove that I am still alive, and that the crowd I see is not an illusion! With only slight exaggeration, that is the overriding expression on the faces of the record roll-call of 1,700 delegates gathered in the outback Australian mining town of Kalgoorlie for the annual Diggers & Dealers forum. Some believe that the recovery on metal and share markets over the past three months has been too good to be true. Others believe that the boom is back. But the vast majority who spoke to Minesite’s Man in Oz as he wandered from the auditorium, into the adjoining marquee, and then out into the cold winter sunlight on the steps of the Goldfields Arts Centre, were uncertain about the future, albeit in a cautiously positive way.

A year of living dangerously, which started with the dramatic collapse of much of the world’s banking system, and led to an equally dramatic collapse in commodity prices, has sapped the confidence of everyone involved with mining. It is good that the nickel price is back over US$8.00 a pound, that copper is heading for US$3.00 a pound, gold continues to test the US$1,000 an ounce barrier, and even zinc, that most horrible of metals, is back over US80 cents a pound. But, the damage of the crash is fresh in everyone’s mind, even if the Diggers forum can appear to be mysteriously disconnected from reality - not just because it is located on the edge of a desert in the world’s most isolated country, or because the three-day event is a “boys own” outing, but also because if you had gone to sleep at last year’s event, and woken up this week, it might seem as if nothing had happened.

Believe it, or not, exactly a year ago, nickel was trading at US$8.00 per pound. Copper was around US$3.20 per pound. Gold was US$918 per ounce. Zinc was US80 cents per pound, and the Aussie dollar was at US84 cents – exactly where it is today. The symmetry in metal prices and the exchange rate is fascinating, and while most shares have some way to go before they reclaim last year’s price levels, many are close to where they were in the first week of August 12 months ago, and some are actually ahead. Three companies which gave presentations on day one of Diggers are case studies for a thesis titled: “Crash, what crash?” Mincor, one of Australia’s more successful nickel miners, is trading 43 per cent higher than it was on the opening day of Diggers last year. Silver Lake is more than double, and Sino Gold is up from A$5.02 to A$5.68.

Looked at in a more statistical way, the metals and mining index of the ASX is currently just 14 per cent down on where it was at 12 months ago. Or, to play with the statistics, it is 78 per cent higher than the low point reached in late November last year. Or, if you will forgive stretching the point even further, it’s worth remembering that between last year’s Diggers and the November low point, the metals index plunged by 52 per cent. These examples illustrate the point that a hell of a lot happened between August 2008 and today, even if it might also seem that nothing really happened. And that’s why the crowds gathered in Kalgoorlie can be forgiven for gawking at one another, not unlike survivors from a train wreck. They are walking and talking, but all are wondering what comes next.

To test his hypothesis that we have more questions to ask than answers, Minesite’s Man in Oz conducted two tests of the Diggers crowd. The first test was a simplistic observation of body language and crowd activity. The second was an up-market version of the Vox Pop type of poll favoured by tabloid newspapers, with the people quizzed in this instance all being chief executives of listed mining companies.

Observation provided a glimpse of where we are in the market cycle, best described as a sort of back-to-the-future experience, with everyone wishing for things to happen, but not quite sure where to start. Without conducting a precise head count, it was still fairly obvious that this year’s event was dominated by bankers, stockbrokers, accountants, lawyers and public relations practitioners, all looking for work. Smelling a story, but not really able to find one, was a record media attendance with 56 journalists, photographers and hangers-on registered, the 42 that came last year.

Dinkum diggers were swamped by wannabe dealers. Then came the mobile phone test on the forecourt of the Arts Centre, where at any one time 150 delegates can be seen chatting, smoking, drinking coffee, or speaking on their phone. Well, not quite true. Last year, as the clouds of the crash gathered, perhaps a third of the forecourt mob were on the phone, with worried looks on their faces. This year, at afternoon tea time, Minesite’s Man counted three. Why? The only answer is that there was no-one to talk to back at head office, because there wasn’t much happening.

The second test, the CEO walkabout, was as equally enlightening as it was imprecise, though for investors on the other side of the world it is surely useful to hear from the horses themselves as to how they see the future. One man who has peered into the abyss of failure, and climbed out, is Michael Kiernan. “It’s really been a case of looking around to see who’s here”, said the one time head of Consolidated Minerals. “We’re all cautious. We know the worst is behind us, but we’re not sure what’s ahead. No-one is being bullish, but we are optimistic.”

Gavin Thomas, chief executive of the goldminer, Kingsgate Consolidated, echoed Kiernan’s sentiment. “This year it’s not about discovery”, he said. “It’s about consolidation. There are far too many bankers about, all looking for deals. There’s not much spruiking by the miners because not many have anything to spruik about. Basically, there’s not a lot new to say, but the event remains a great place to re-establish contacts.”

Peter Harold, chief executive of the nickel miner, Panoramic Resources, said the past few months had been all about watching the nickel price return to fair value. “The question is really whether fair value today is the same as yesterday, and I suspect not”, he said. “Average grades in the world’s nickel mines continue to fall, and while US$3.50 per pound might have been fair value a few years ago, today it is probably closer to US$7.50 per pound.”

Mark Ashley, chief executive of the goldminer, Apex Resources, managed to avoid Minesite’s Man until they shared a plane back to Perth late on Monday. He flagged the potential for growth via acquisition, and is considering a number of strategic moves. A similar view was espoused by Silver Lake chief executive Les Davis, who was looking very dapper in a pinstripe suit, as befits a man who has orchestrated a very successful development story. If the suit spoke of success, Les’s view of the world is still cautious, though. “I’m not convinced that we’re through the worst of this market”, he said. “It’s good, but the banks are still in trouble. Gold is a good place to be in these times.”

John Jones, founder of Troy Resources, was equally optimistic about gold, and delighted that his faith in Troy’s Sandstone operations has been confirmed by a fresh discovery which will add years to that mine. Also occupying Jones was the work of a private company he is helping to build, Altan Rio, which has a promising discovery in Mongolia. Like most other leading Australian mining executives, Jones is optimistic, but not excited. “We’re on the way back, but there’s still a long way to go”, he said.

That view was repeated by most of the 14 chief executives who, perhaps unwittingly, participated in Minesite’s Vox Pop, among them Tim Goyder from Chalice Gold, Ian Mulholland from Rox, George Jones from Gindalbie, John Lewins from Platinum Australia, Stephen Everett from Australian Solomon Gold, and Kevin Willis from Flinders Mines. All can see the light ahead, even if they remain uncertain about how fast they are travelling towards it.
 
August 07, 2009

Chinese Steel Production Is Underpinning Global Iron Ore And Coking Coal Production, But How Long Can It Last?

By Alastair Ford
www.minesite.com

It can be a dirty business, iron ore. Sure, finding an attractive mineral deposit and keeping hold of it once it starts to look rich enough to tempt avaricious bureaucrats or rival local operators is never easy. But it’s surprising how many of the current tussles at the beginning of the metals supply chain involve iron ore. The great West African iron ore deposits have lately been witness to allegation and counter allegation as two small London-traded mining companies battle for control of the old Tonkilili projects, and judging by the accusations that have been thrown around, the libel laws in Sierra Leone are clearly open to very liberal interpretation.

Across the border in Guinea Rio Tinto has just been dumped off the Simandou iron ore project, which has now been passed over to one of the most influential individuals on the continent in the metals arena, the Israeli Beny Steinmetz. Elsewhere, the battle for the Berezovskoye iron ore deposit in the Chita region of Russia between the Chinese conglomerate Xiyang continues. And further up the line, in Australia Rio Tinto executives are still smarting following the arrest of several of their price negotiators in China on allegations of industrial espionage.

Iron ore is clearly still a much sought after commodity, even after the global financial crisis, and some of the world’s less salubrious characters are clearly not too worried about how they get their exposure. The driver, as ever, is China. To underline this point, one only has to look at the recent financial results from the mining major Anglo American. These results were widely viewed as terrible, as diamonds, platinum and gold all underperformed. The one saving grace was Kumba, the company’s iron ore division, which delivered US$738 million of earnings to the parent, the largest single contribution, on the basis of a new focus on selling directly to China.

Chinese steel production is still on the rise, and hit record levels in the first half of 2009. That the rest of the world’s production is flat or in decline means that the Chinese, along with the Japanese, the Koreans, and other key buyers of iron ore once again have the upper hand in the annual price negotiations with the major producers BHP Billiton, Rio Tinto, and Vale, and that they are also enjoying a buyers’ market for the other key ingredient to steelmaking, metallurgical coal. But with spot iron ore at a 10 month high at around US$110 to US$112 per tonne, the Chinese may now have to settle for a less severe price cut than they'd been hoping for.

BHP Billiton recently referred to the overall prevailing economic conditions as “a modest demand environment”, but on the other hand also reported coal and iron ore as among the strongest propositions it has right now. The difference is that while operations involving metals or alloys such as aluminium and manganese are in decline or operating below capacity, the Chinese demand for steel is at least allowing for iron ore and metallurgical coal output to stay steady or increase, even if pricing for those products is weaker. This means that margins are being squeezed on the coal side, and some mines are shutting down, but overall the mood in the industry remains optimistic. Meanwhile with spot iron ore prices trending upwards, many smaller Australian producers have been able recently to sell even at a premium to spot.

The trend now probably will be away from annual price negotiations for iron ore, and away from spot settlement for coal shipment, as the Chinese increasingly lock down supply in project specific deals, or off-take agreements. In spite of the recent spat between Chinese officialdom and Rio Tinto, lots of these deals are being done with Australia. Chinese companies are moving in a big way to lock in supply from projects in the Australian iron ore producing areas of the Yilgarn and Pilbara, as a defensive move against any possible combination of BHP Billiton’s and Rio’s operations down there. Meanwhile Chinese imports of coking coal have also jumped significantly, for the slightly paradoxical reason that lower coal prices have rendered many of China’s own mines uneconomic. US coal giant Peabody, and Switzerland’s Xstrata have both ratcheted up coal shipments to China recently, although Xstrata’s boss Mick Davis has warned that prices may soon return to levels at which China’s own mines can be reopened. However, a further complication is that China has been on a long campaign to close down unsafe coal mines, which has further restricted the local supply.

What happens next largely depends on the success of president Obama’s stimulus package. US spending is expected to drive up the cost of steel and associated raw materials, and indeed Nucor, the second largest US steelmaker raised prices recently for the first time in many a long month. If the stimulus can drive a global recovery then coal and iron ore prices will be on the march again. But there’s only so long the Chinese can prop up these markets on their own. Anecdotally, the Chinese expect some domestic weakness of their own by 2011. By that time, with any luck, recovery elsewhere will be taking up the slack.
 
UPSIDE POTENTIAL FOR METALS AND MINING STOCKS
Credit Suisse forecasts growth period for long-term commodity demand
Credit Suisse analysts say they continue to like the long-term story for metal demand, suggesting demand will remain at strong levels in the next 10-15 years.

Author: Dorothy Kosich / www.mineweb.com
Posted: Monday , 10 Aug 2009

RENO, Nevada [USA]

In recently published research, Credit Suisse metals and mining analysts say they are "selectively bullish" on certain commodities-such as copper, zinc, carbon steel, platinum and nickel-and remain "long-term bullish" on commodity demand driven by demographics and global infrastructure spend.

Credit Suisse's analysis suggests we are currently in a growth period for long-term commodity demand driven by the ongoing industrialization of China and emerging markets; global demographic shifts that will drive commodity-intensive demand for infrastructure; and by a wealth-transfer effect which requires infrastructure that is the "single greatest driver of long-term commodity demand."

Research analysts Michael Sillaker, Elly Ong, Alessandro Abate, and Hannah Kirby wrote, "We believe global industrialization will continue and, as such, ongoing demand for commodities should remain strong. Against this backdrop, we believe there is substantial long-term upside potential for steel, metals and mining stocks."

In their analysis, the analysts determined China's apparent metals consumptions appears "way ahead of real demand growth rates." They believe "China is arbitraging the West on commodity prices. It is acting as an effective ‘vacuum cleaner' for commodity demand in an ex-China recession, which would not have been material ten years ago."

"China appears in effect to be frontloading its own industrial recovery and stimulus by buying commodities as a cheap asset class. This compares with the Western world, which tends to buy most when demand is at its peak and prices are high. This is a well thought-out strategy from China but we should caution that apparent demand growth rates are well above where we see real demand growth right now and, as such, demand from China is unsustainably high in our view."

Credit Suisse's analysis suggests the country is currently consuming the amount of copper it should be consuming in 2011/2012. "There is a risk of a pull back, especially if prices start to rise, and any rapid pullback is unlikely to be matched by ex [external] China demand growth."

Meanwhile, the analysts forecast "a substantial tightening in the ex China supply-demand balance for all commodities (although some more than others)."

"We continue to like the long-term story for metal demand," the analysts said. "Like the 1950s and ‘60s post-war restructuring phase (when metal demand grew in the 6-8% range), we are now in what we believe is a long-term industrialization phase. ...Therefore, after the cyclical recovery, we forecast, metals demand should structurally remain at relatively strong trend levels in the next 10-15 years."

Credit Suisse advises the strongest commodities for its long-term view of the global metals and mining sector are:

•1) Copper-potentially 21mt of demand by 2012 will not likely be met by new mine capacity. Even under a significant long-term slowdown in China, "we would get to 25mt of copper demand by 2016-which means new mines are necessary. When new mines are necessary the pricing dynamics should move from cost plus pricing to long-term pricing that satisfies the IRR of newbuild."

•2) Zinc-"Although zinc is not favoured by many investors, we believe they often forget how late-cycle this metal is (within the 20-30-year cycle). ...Mine depletions from 2012E could be significant, although Chinese production capability is potentially large in our view. ...We believe China's mined output is in general small scale and ‘inefficient' and hence high cost, which is unlikely to be cost effective in a demand boom. We expect a sharp price increase in zinc in 2011/12, which will be required if CEOs are to be encouraged into building new projects."



•3) Iron ore-"we are positive structurally on volume, as low-cost high-quality ore continues to take market share from high-cost production, notably in China and India, as the steel market continues to grow at 4-5% in the long term. Nonetheless, given spare capacity (largely higher cost), new volumes from the seaborne majors will, we believe, come at the expense of price in the long term."



•4) Coal-thermal coal looks set for the long term. Metallurgical coal is structurally tight in supply, but geared to external Chinese demand; "so it may take time to return to 2008 levels."



•5) Platinum-"limited new capacity, ongoing supply problems, and increasing global care and jewellery market, with cleaner cars suggesting a long-term switch to diesel. Fuel cell demand remains a positive long-term possibility."


"If investors, like us, favour the above commodities, then Rio, Anglo or Xstrata are probably the equities to own," the analysts advised.

‘BHP possibly has the best commodity mix and the strongest growth profile of the stocks in our universe. The problem we have with the stock is that the market appears fully aware of this and the stock therefore appears to have priced this in," they said. "We do think, however, that BHP is a relatively strong defensive play in the cyclical universe for more cautious investors wanting cyclical exposure."
 
August 17, 2009

The Price Is Right: Commodities Strength Continues, As The Fundamental Outlook Remains Favourable

By Rob Davies
www.minesite.com

Base metal prices reached new highs for the year last week, but somehow pundits and commentators deemed this milestone less worthy of comment and attention than it was when equity prices hit a their own year highs recently. Yet the underlying drivers for both are the same. There’s a growing perception that the recession is over and it’s all good news from here on.
Well, that’s what the bulls say at any rate. The bears take the view that the recently reported growth in the French and German economies of 0.3 per cent in the second quarter is so anaemic as to hardly count. Besides, they add, a significant factor in that number was that the base from which that recovery is coming was already weak. As the year progresses that arithmetic input of a low starting point will start to make whatever is happening now look a lot better.

Even so, few miners can be unhappy at seeing copper trading at US$6,413 a tonne, aluminium at US$2,034, nickel at US$21,065 and zinc at US$1,897. Almost all the major metals are now at twice the price they were fetching during the first quarter. And depending on which markets you look at equity indices are 30 per cent to 50 per cent up from their lows.

The ongoing discrepancy between perceptions and reality was beautifully illustrated last week when BHP Billiton reported its results. Although the company’s shares are now trading at over £15.00 they were below £10.00 in December 2008. Yet in the face of that share price strength the company reported a 62 per cent fall in earnings per share.

Commodity pricing is much more about the fundamentals of supply and demand than the pricing of equities is, because commodities are not widely viewed as an asset class for investors, though the widening use of commodity ETFs is changing that a little. Even so the close correlation in prices shows how connected they are in practice.

And, at the moment, the fundamentals for commodities look pretty good. Inventories, at least published ones, are still low in relation to demand. China’s consumption is still firm and there are indications that even if construction and car building in the west is not rising it is at least not getting any worse. There is no further downside from a plant that is closed.

Some of the activity is supported by the environmentally ludicrous scheme of incentivising people to scrap perfectly good old cars to buy new cars. Those schemes though, are cash constrained and when they end, as inevitably they will, one wonders what governments will do for their next trick. By how much will the unsold inventory of cars have really been reduced?

In equities history offers few comparisons for the near 50 per cent surge in valuations that we’ve witnessed over the last six months. What comparisons there are date back to the 1930s, and the analogy there is not very comforting. Investors in commodities are more used to such roller coaster rides in pricing and, although there are reasons to believe that commodities are overbought on a momentum basis, the strong fundamentals should provide better support than for equities.

Moreover, the extremely low interest rate environment supports the futures markets and nickel is the only metal with a backwardation out to 15 months. All the other base metals are in contango with gently rising quotations on a three month and fifteen month basis. That suggests this is an orderly market, not a bubble. Whatever investor’s views and opinions of the short term future, the sum total of human knowledge is actually represented in those prices on the LME.
 
August 22, 2009

That Was The Week That Was ... In Australia
By Our Man in Oz
www.minesite.com

Minews. Good morning Australia. The August malaise certainly took a firm grip of your market last week.

Oz. It did, and it wasn’t made any easier by half the country staying up late into the night to watch cricket, a decision most Australians now regret. Overall, the market, as measured by the all ordinaries index, fell by 3.6 per cent last week, taking it back to where it was in the opening week of August. The metals and mining sector declined faster with a fall of 4.7 per cent, while the gold index did “least worst” with a fall of 3.1 per cent. But golds can be expected to rebound strongly next week after the late rally in the London gold price which moved back over US$950 an ounce after we had closed here in Australia.

Minews. It’s interesting that your stock market fell in spite of what seems to have been a flow of positive resources news last week.

Oz. We are living in confusing times. Last week was a cracker for the Australian resources sector. It ended with the national business newspaper, the Financial Review, splattering across its Saturday morning edition a two-word front page headline: “Resources Boom”. What brought that flush of enthusiasm on, from a media outlet which usually derides resources - in much the same way your Financial Times has never quite come to grips with gold - was the double-barrel effect of a monster gas sales deal with China, and a US$6 billion free kick awarded by China to the iron ore miner, Fortescue Metals Group (FMG).

Minews. What interests investors is whether it’s all media hype or whether we really are on the verge of a return of the boom.

Oz. If pressed for an early verdict the answer is positive - yes, the boom is back. But given a bit more time to consider the matter, the verdict might be a little more cautious – perhaps, at least, the first seeds have been sown for a return to the boom.

Minews. Which boils down to a debate about timing more than anything else.

Oz. Precisely. Last week’s deals in the worlds of liquefied natural gas and iron ore were quite remarkable, and cemented the already impressive trade relationship that Australia enjoys with China, even at a time when the two countries are at a diplomatic loggerhead over human rights and spying allegations against a Rio Tinto iron ore salesman. The gas deal, in which ExxonMobil sold most of its annual share of production from the Gorgon liquid natural gas (LNG) project for US$50 billion, is likely to be the start of a flood of LNG deals as Australia starts to monetise its vast reserves of natural and coal-seam gas. The FMG deal, in which China promised the company a loan of US$6 billion on advantageous terms, came after the Chinese won a bonus reduction on the price paid for Fortescue’s annual iron ore shipments. That extra money is likely to be good news for FMG, as well as for the flotilla of local small iron ore companies desperate to gain access to the country’s rail and port services, and all because China, in sympathy with various levels of Australian government, wants to see as much ore as possible hitting the ports.

Minews. Which leads us to prices, and a natural start with iron ore this week.

Oz. Good choice. But even with the positive news that hit the headlines this week, most share price movements were down. There were only a handful of winners. FMG itself ended the week steady at A$4.45, while several of the sector leaders fell quite sharply. Atlas Iron (AGO) lost A16 cents to A$1.78, BC Iron (BCI) fell A8.5 cents to A96.5 cents, and Iron Ore Holdings (IOH) slipped A7 cents to A71 cents. Going against that trend were a couple of stars. These were led by Polaris Metals (POL), which has agreed to an all scrip takeover offer from the mining services company, Mineral Resources (MIN). The two companies already have a strong working relationship. The bid lifted Polaris by A9.5 cents to A39.5 cents, while Mineral Resources rose by A43 cents to A$5.14.

Meanwhile, Flinders Mines (FMS) was another strong performer in the iron ore space. Across the week the company added A0.7 of a cent, but on Thursday traded up to A10.5 cents, which was double the price the shares were at at the middle of last week, and enough of a rise to cop a speeding ticket from the ASX, perhaps the first for Flinders since it switched from diamonds to iron ore.

Minews. Gold next please, and we’ll bear in mind that the price hike on Friday came too late for you.

Oz. Most gold stocks trended down, with the odd exception. Shares in Pioneer Resources (PIO) - which has just changed its name from Pioneer Nickel - doubled on Thursday after the company reported excellent drill hits at its Lignum Dam project in Western Australia. Best assay was 11 metres at 5.63 grams of gold a tonne from a depth of 40 metres. The company’s shares ended the week at A5.7 cents, up A2.1 cents or 58 per cent. Troy (TRY), meanwhile, continued its strong upward run, adding another A7 cents to close the week out at A$1.90, a shade off a 12 month high of A$1.95 reached earlier on Friday. And Alkane (ALK) made a welcome return to the winner’s circle with a gain of A4 cents to A33 cents, which was also a slight fall back from a 12 month high of A38.5 cents reached earlier on Friday. Alkane’s strength was perhaps a result of reports that China is cracking down on its rare earths industry. Two other rare earth plays, Lynas (LYC) and Arafura (ARU) were also among the winners. Lynas added A12.5 cents to A58.5 cents, and Arafura rose by A13.5 cents to A63 cents.

Elsewhere among the pure gold stocks Sino (SGX) added A9 cents to A$5.83 and Gryphon (GRY) rose A1.5 cents to A33.5 cents. After that it was largely downhill. Kingsrose (KRM) paid the price of a positive mention on Minesite, sliding by A4 cents to A48.5 cents, but is still double where it was four months ago. Avoca (AVO) fell A9 cents to A$1.62 after its bid for Dioro (DIO) failed to get past the 50 per cent mark. Dioro also lost ground, falling by A8 cents to A73 cents. Adamus (ADU) lost A2.5 cents to A34 cents, and Kingsgate (KCN) fell A33 cents to A$6.45.

Minews. Base metals and uranium to finish please.

Oz. Copper attracted most interest last week, with two stand-out stocks. Citadel (CGG) gathered traction after it announced an off-take agreement and capital injection, news which propelled the company’s shares to a 12-month high of A34 cents in early trade on Friday. Later in the day the shares eased, to close at A32.5 cents for a gain of A6 cents over the course of the week. The other big winner was Rex Resources (RXM), which reported excellent drill hits at its Hillside project on South Australia’s Yorke Peninsula. Rex rocketed up by 73 per cent to A$1.40. The eye-catching assay was only 1% copper, but it was over a 200 metre intersection.

Minews. It might be time for an update report on Citadel, and perhaps a look in detail at what Rex is up to. In the meantime, let’s finish the call of the card.

Oz. Shares in most other copper companies fell. Anvil (AVM) dropped by A43 cents to A$2.70, Equinox (EQN) lost A21 cents to A$2.84, and Sandfire (SFR) continued its retreat, losing A21 cents to A$1.65. All the nickel and zinc stocks lost ground. Mincor (MCR) fell A26 cents to A$2.63, after it reported its first loss. Western Areas (WSA) did much the same - reported a loss, and fell by A70 cents to A$5.48. Independence (IGO) lost A33 cents to A$4.65, and Panoramic (PAN) dropped by A41 cents to A$2.44. Bass Metals (BSM) lost least of the zinc stocks, slipping half a cent lower to A20 cents.

Uranium stocks were flat, with one rise. Toro (TOE) added half a cent to A18.5 cents. Extract (EXT) ended its meteoric run, easing back by A18 cents to A$8.30, while Mantra (MRU) was steady at A$3.70.

Minews. Thanks Oz.
 
August 24, 2009

Whisper It Softly, The Worst May Be Over

By Rob Davies
www.minesite.com

Even though metal prices fell back last week, the underlying news flow for the industry continues to improve. Because even though emerging markets are the key growth market for metals, the reality is that over 50 per cent of demand still comes from countries in the OECD. So the news that France, Germany and Japan all reported positive growth in the second quarter of 2009 is encouraging confirmation that the corner has been turned.

And now that equity markets have bounced 30 per cent and some metals prices have doubled, many economists have now pronounced recovery is on the way. Such statements, of course, only go to show that in many ways economists are the ultimate apparatchiks of the Department of The Bleedin’ Obvious. Prices started to tell us that five months ago.

While the economic news drove equity markets to new heights for the year, the last week wasn’t quite so positive for metals. Copper dropped 4.6 per cent to US$6,121 a tonne, nickel slumped 8.9 per cent to US$19,200 a tonne, and aluminium split the difference with a 6.3 per cent fall to $1,905 a tonne. Lead and zinc were more subdued, falling 3.5 per cent and five per cent respectively to US$1,820 and US$1,803 a tonne.

On the news front the big development was better than expected housing starts in the US. For a more serious analysis of commodities the Outlook for Metals and Minerals written by Vivek Tulpulé and which accompanied the recent interim results from Rio Tinto is an excellent summary of the current situation. He too concurs with the consensus that the worst is over, although he warns that the fragility of many countries and the banking system means that we cannot ignore the possibility of some secondary shocks.

He attributes the current strength in hard commodities to six factors: Chinese demand, the end of destocking, production cuts, the ending of recession, low interest rates, and speculation about a lack of finance for new projects.

Each factor deserves more analysis than can be given here but several features are worth noting. Mr Tulpulé makes the point that 73 per cent of the global stimulus to infrastructure spending is coming from China. That has given a major boost to metals, as illustrated by the fact that copper imports into China in the first half of 2009 were 30 per cent higher than total copper imports in all of 2009.

In contrast aluminium demand fell by 20 per cent in the first half, due to changes in the Chinese pricing structure. Iron ore, as is well known, has been a strong market, driven not just by infrastructure spending but also by the ongoing Chinese railway construction programme, big developments in rural housing and reconstruction in the wake of the Sichuan earthquake.

One long awaited event finally came to pass this year as China became a large importer of thermal coal for the first time. High domestic production costs and low international freight rates finally tipped the balance to deliver a situation that had long been predicted.

Overall Mr Tulpulé concludes that the world has weathered this severe crisis very well, mostly due to prompt government action. Although he expects the fundamentals behind the recent price rally to remain in place into 2010, he is cautious about how strong an impact this will have on some, at least, of the metals.

Nonetheless, Mr Tulpulé also points out, as a more long-term bullish view, that the real driver for world growth is coming from emerging markets. The fact that per capita metal consumption in those regions is well below that of the developed world will drive significant incremental demand growth over time he says.
 
August 29, 2009

That Was The Week That Was ... In Australia

By Our Man in Oz
www.minesite.com

Minews. Good Morning Australia. Your market seems to have had a strong week.

Oz. It was promising, in parts. Each sector produced an eye-catching winner, either from a corporate deal, a strong profit, or an exploration result, but the overall trend among mining stocks failed to match the very buoyant tone evident in the wider Australian market. The metals index on the ASX ended the week up 2.8 per cent, while the all ordinaries added 4.4 per cent, an indication of how well banks and industrials performed. The hottest game for speculators was in lithium, the metal earmarked for great things in electric car batteries. A new player, Reward Minerals (RWD), said it was joining the Australian lithium game last week, and was immediately handed a 50 per cent higher share price.

Minews. Presumably there is some substance behind such a sharp upward move?

Oz. Perhaps, but draw your own conclusions because all that actually happened to warrant the rise was that Reward announced the lodging of an application for an exploration tenement over a lake in the Western Australian wheatbelt. The company claims it has noted “relatively high soluble lithium values” during earlier exploration for potash. Given that this lake, Lake Dumbleyung, holds a unique place in Australian history, the chances of there ever being a lithium mine in the area is pretty remote. Older readers might remember that the late Donald Campbell set a world water speed record there in 1964, and it remains a playground for local farmers. Nevertheless, fearless punters piled into Reward within hours of the Wednesday filing of the “soluble lithium” report, driving the stock up from A31.5 cents to A38 cents on Thursday, and then up another A9.5 cents to a close on Friday of A47.5 cents.

Minews. Interesting. Even if it leads nowhere it’s a measure of speculative interest in your market.

Oz. It is, and there’s no doubt that lithium is the flavour of the month. The other two local players in that space also had a good week. Galaxy Resources (GXY) raised A$26 million in fresh capital in a combined capital raising and debt-funding deal with a Chinese company, Creat Group. The funds will be used on its Mt Catlin project. The major winner in that partnership so far are the Chinese, though, given that they agreed to pay A88 cents a share for a 19.9 per cent stake in Galaxy on Tuesday when the stock was trading around A$1.40. It closed on Friday at A$1.42, up A9 cents for the week. Meanwhile, Reed Resources (RDR), the other player in the lithium game, successfully raised a fresh A$10.9 million on the strength of an option to acquire an old WMC Resources lithium prospect. It closed down A2 cents on Friday at A37 cents.

Minews. Nothing like a speculative boom to generate interest in the market! Let’s shift across to the sectors and those eye-catching movers you mentioned earlier.

Oz. Iron ore produced the star of the week, also courtesy of another Chinese-linked deal. Aquila Resources (AQA), which has been steadily building a portfolio of coal, iron ore and manganese interests, signed a funding and future commodity-supply deal with China’s biggest steel mill, Baosteel. As well as injecting A$285 million into Aquila through a placement priced at A$6.50 a share, Baosteel also said it would help source low-cost finance for Aquila’s mine development plans. On the market, Aquila rose A55 cents to A$7.15. Elsewhere in the iron ore space trading was mixed. Gindalbie (GBG) added A4 cents to A85 cents after a broker report compared it favourably with Fortescue Metals (FMG). Fortescue, meanwhile, slipped A8 cents to A$4.44. Meanwhile, Giralia (GIR) rose A1.5 cents to close the week at A71.5 cents after strong exploration results from the Mt Webber project. At one stage early in the week shares in Giralia were trading as high as A79.5 cents, before they eventually gave up ground. Other risers included Brockman (BRM), up by A6 cents to A$1.41, and BC Iron (BCI), up by A3.5 cents to A$1.00. Centrex (CXM), which announced a sales deal covering its Wilgerup project in South Australia, was steady at A47 cents, while Golden West (GWR), which is showing early signs of revitalisation, slipped A1 cent lower to A36 cents.

Minews. We might take a closer look at Golden West if what you say about revitalisation is correct. For now, let’s move through the rest of the sectors, with gold next, please?

Oz. Sino Gold (SGX) was the clear winner among the Australian gold stocks, thanks to the A$2.2 billion merger proposal which came in from Canada’s Eldorado. The share swap deal, which seems assured of success, values Sino at A$7.24 per share. That price helped move Sino’s shares up A$1.13 over the week, to close at A$6.65. Investors in Kingsgate (KCN) were also better off after the company reported an improvement in profits. Kingsgate’s shares rose A48 cents to A$7.07. Alkane (ALK) was also in the winner’s circle, though whether the buyers were coming in for its gold or for its rare earths project is a bit of a guess. Still, the shares were up by A4.5 cents to A39 cents by the end of the week. Also on the move was Troy (TRY), which continued its strong recovery investors continue to warm to the company’s three mine strategy. Troy ended the week at A$2.00, a gain of A15 cents, but did trade as high as A$2.07 on Wednesday, a 12 month high. Elsewhere, Drake Resources (DRK) made a surprise return, putting in a rise of A5 cents to A24 cents after it announced the start of drilling at its Falun project in Sweden. Other movers included Silver Lake (SLR), which added A5 cents to A75 cents, and St Barbara (SBM), which gained A2 cents to A22.5 cents. Apex (AXM) continued its downward spiral, losing A3.1 cents to A9.4 cents. Finally, Bendigo Mining (BDG) ended the week steady at A23 cents despite posting a modest annual profit of A$8.25 million.

Minews. Base metals and uranium next please?

Oz. Zinc produced most of the base metal winners for the week, which was a surprise in itself. Though most of the moves were modest, it could be a pointer to a trend, given that the zinc price continues to creep higher, and that at US$0.83 a pound most zinc mines should be in the black. In that context, Terramin (TZN) added A3 cents to A74 cents, Perilya (PEM) rose by A1.5 cents to A38.5 cents, and TNG (TNG) rose A0.8 of a cent to A7 cents. CBH (CBH), however, slipped half a cent lower to A10.5 cents.

Copper produced a handful of winners, but an equal number of losers. Jabiru (JML) reported an upgraded resource at its Teutonic Bore mine, news which lifted the stock by A4 cents to A36 cents. Citadel (CGG) continued to build support, and put in a rise of A1.5 cents to A32.5 cents. Hillgrove (HGO) was also stronger, up A1.5 cents to A24.5 cents. Going down, OZ Minerals (OZL) was hit with heavy selling after it reported a big loss. On the plus side, this should clear out the last of the dead wood following its big corporate re-shuffle. OZ dropped A6 cents to A$1.05. Also weaker was Sandfire (SFR), which fell A10 cents to A$1.52. Anvil (AVM) was steady at A$2.70.

Nickel stocks were all down, and that ended a very solid period of recovery. Mincor (MCR) fell A37 cents to A$2.33. Independence (IGO) slipped A7 cents lower to A$4.45, and Panoramic (PAN) lost A9 cents to A$2.40.

Among the uranium stocks Extract (EXT) was the star, again. It rocketed up by another A$1.08 to A$9.50, but did hit a fresh high of A$9.90 earlier in the week. At this latest price, Extract is capitalised at A$2.1 billion, within sight of the A$2.8 billion value of its Namibian rival, Paladin Energy (PDN) which managed a rise of A14 cents to A$4.57 last week. Bannerman (BMN), another Aussie in Namibia, rose by A7 cents to A$1.15 last week. But after that most uranium stocks slipped lower. Mantra (MRU) lost A15 cents to A$3.55, while Uranex (UNX) fell A2.5 cents to A35 cents.

Minews. Thanks Oz.
 
drillinto said:
Among the uranium stocks Extract (EXT) was the star, again. It rocketed up by another A$1.08 to A$9.50, but did hit a fresh high of A$9.90 earlier in the week. At this latest price, Extract is capitalised at A$2.1 billion, within sight of the A$2.8 billion value of its Namibian rival, Paladin Energy (PDN) which managed a rise of A14 cents to A$4.57 last week. Bannerman (BMN), another Aussie in Namibia, rose by A7 cents to A$1.15 last week. But after that most uranium stocks slipped lower. Mantra (MRU) lost A15 cents to A$3.55, while Uranex (UNX) fell A2.5 cents to A35 cents.

Minews. Thanks Oz.
Click to expand...

Wow EXT keeps climbing. Wand this stock a penny a few years ago?

877.jpg


Resource Capital Research
September Quarter 2009

EXT's scoping study indicates Rossing South mine (14.8mlbpa) could dwarf neighbour Rossing (2008: 9.1mlbpa; RIO 69%). Shares are reasonably valued on project NPV, but upside is likely from further exploration success and corporate intrigue involving RIO.

Overview:
EXT’s exploration for uranium in Namibia has exceeded expectations as the world class potential of the major Rössing South discovery (located immediately South of the RIO’s Rössing uranium mine) becomes more evident. Exploration is advancing rapidly towards 300mlb U3O8 and beyond. The recently released scoping study targets a 14.8mlbpa operation (production 2013?) which if operating today would be the world’s second biggest uranium mine (with 60% higher output than Rossing itself!). Rossing South Project – Resource Status: EXT has identified extensive strongly mineralised high grade alaskite which is undoubtedly a major southern extension of the Rössing Mine (RIO 69%) orebody (previously concealed beneath Namib desert cover). EXT has identified two initial mineralised zones (Zones 1 and 2) covering a combined 6km strike length out of a total target zone of 15km.

Zone 1 (2.4km): 3 Rigs (1 RC and 2 core) are currently engaged in resource definition drilling on 50 x 50 m spacings (~80,000m to date) – an upgraded Indicated & inferred JORC resource for Zone 1 of 147mt @ 449ppm for 145mlb contained U3O8 was announced in July ’09. Further drilling is proceeding which is expected to further increase the resource size and upgrade the JORC classification. Zone 2 (2.0km): EXT has completed ~58,000m of an on going intensive resource definition drilling program, using 3 RC rigs drilling on 100m x 100m centres. The maiden Zone 2 JORC inferred resource of 122mlb @ 543ppm was confirmed in Jul ’09 - well in excess of target 106mlb and impressive grades– better than Zone 1. Zone Extensions: All zones drilled to date are open at depth and along strike. EXT’s initial drilling ~2.8km S of Zone 2 intersected uraniferous alaskite with handheld spectrometer results indicating better results than Zone 1 discovery holes. Very encouraging for resource extensions beyond Zone 2 This anomaly is being drilled, as well as broader reconnaissance drilling on 1.6km spaced lines.

Further major resource upside beyond 300mlb seems assured based on this work. Rossing South Scoping Study Cost Estimates: GRD Minproc has completed preliminary
cost estimates based on a 15mtpa operation, conventional acid leach with 92% recovery, head grades 487ppm, for 14.8mlb/year U3O8 production. Capex estimate is US$704m, opex US$23.60/lb which confirms Rossing South to be very low on the global cost curve. A more detailed PFS is underway with a heap leaching alternative also being considered.

Ida Dome Project: The Ida Dome resource is ~20km south of the Rössing S. A JORC resource of 25.1mlbs U3O8. was defined before Zone 1. This is now low priority, additional resource potential is high.

Corporate: Rothschild has been engaged by EXT as a corporate advisor, with project financing in mind. Boardroom stoushes now resolved with significant shareholders RIO and Polo Resources appointing Directors, and major shareholder Kalahari to appoint new MD after Peter McIntyre retires Sep ’09.

Investment Comment: EXT shares have continued their spectacular run, and have pushed through the A$7.50 – A$8.00 target we set in our last Review. Now that we have scoping study cost data, our preliminary modeling (based on 10% discount rate, US$60/lb long term U price and fairly severe 30% discount applied to scoping study NPV) indicates assessed value around A$7.20 (~US$4/lb for current RS resource). This suggests the RS project as scoped is fully valued at current share price. That notwithstanding, we expect further share upside (~20-30%) with on-going corporate intrigue (RIO stake) a factor (Forsys takeover took place at ~US$7.50/lb for an inferior grade resource), and the very high probability of further major exploration upside.

http://www.rcresearch.com.au
Click to expand...

RBC Capital Markets comments on the Capital Raising


RBC Comment :

Extract Tops Up the Till; Increasing Target to $12

• On August 25, 2009, Extract Resources announced it is raising $91 million by
way of a two-part equity issue comprising a non-renounceable pro-rata offer to
certain eligible shareholders and a private placement to accredited institutional investors.
• The proceeds from the two issues will be used to accelerate exploration activities at the Rössing South project and to complete the Definitive Feasibility Study.
• We expect this issue to improve trading liquidity on the TSX.
• The three major shareholders of Extract (Kalahari Minerals, Rio Tinto and Polo Resources) have agreed to take their pro rata share of the Entitlement offer.
• After this equity issue is closed, we believe Extract will have sufficient funds to carry out its exploration activities as well as its definitive feasibility study.
• We are increasing our target for Extract to $12.00 per share, up from $11.50, previously.
Click to expand...
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Thx

MS
 

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September 01, 2009

Is A Correction In Metals And Equities Prices Imminent?

By Rob Davies
www.minesite.com


Base metal prices made more progress last week, save for aluminium. Equities moved higher as well, as should be expected of a pro-growth asset. Oddly though, money also moved into bonds, taking two year gilts down to a yield of 0.8 per cent and 10 year US Treasuries to 3.52 per cent. But in spite of that, given that the latest data still shows the US and UK economies both contracted in the second quarter, there seems little reason to worry about even more weakness in metals or equities.
Of course it could be that the stellar gains made by equities in the last six months and metals over the course of the year are giving some investors vertigo. The desire to lock in gains on those assets and protect the downside by buying bonds is understandable after the last couple of years.

Metals of course are simply commodities and, unlike equities, are not pricing in expectations of the future. That was one reason why lead suddenly jumped up last week from US$1,820 to US$2,020 a tonne. The sudden closure of a lead smelter in the Chinese province of Hunan on environmental grounds reminded traders that inventories are still incredibly low at 120,000 tonnes.

Lead will always be vulnerable to supply disruptions because of the health risks it poses to humans. In theory that ought to encourage manufacturers to maintain larger stocks so that interruptions won’t affect production. In reality, even in an age of super-low interest rates, no one wants to sit on any more working capital than is needed as a bare minimum.

A similar argument applies to copper. As politically unstable central Africa becomes a larger source of primary supply, the uncertainty of the steadiness of that supply increases. That should make fabricators keener to keep a little bit more metal on hand just in case.

Against that, the continuing rise in the price, now standing at US$6,260 a tonne, up US$140 on the week, is a strong incentive to hold as little as possible. The Chinese, of course, are taking a different view, having built up a stockpile of over one million tonnes - over three times the size of LME inventories.

Nickel and zinc also made gains last week rising US$185 and US$14 respectively, to US$19,385 and US$1,817 a tonne. Aluminium was the only metal to slide back, dropping US$70 to US$1,832 a tonne.

As traders return to their desks over the next week all will be mindful of the reputation the next two months have for sharp, stomach-turning downward lurches. After the gains made so far this year it is an easy call to lock in profits. Doing that, though, leaves investors open to the risk of being left behind if economies are really starting to emerge from what has been the worst crash in a century. Record low interest rates means that the cost of holding risk assets has never been lower.

But while the cost of money is not a hurdle, getting access to it is. That makes financing new mines even more difficult and creates a significant barrier to entry to the industry. Low inventories, high barriers to entry and a continuing process of consolidation among the miners ought to mean that capital deployed in mining should continue to generate exceptional returns for those brave enough to take the risk, even if there is a correction on the way.
 

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